We propose a theory of low-frequency movements in unemployment based on downward real wage rigidities. The theory generates two main predictions: long-run unemployment increases with (i) a fall in long-run productivity growth and (ii) a rise in the variance of productivity growth. Evidence based...

Using a standard dynamic general equilibrium model, we show that the interaction of staggered nominal contracts with hyperbolic discounting leads to inflation having significant long-run effects on real variables

In the conventional textbook demand-supply model of competitive labour markets, introduction of a minimum wage above the market-clearing level must reduce employment. Empirical findings suggest, however, that this might not always be the case, which appears to be most readily explained by...

We consider the effect of money illusion - defined referring to Stevens' ratio estimation function - on the long-run Phillips curve in an otherwise standard New Keynesian model of sticky wages. We show that if households under-perceive real economic variables, negative money...

The present paper explores the connection between inflation and unemployment in different models with fair wages both in the short and in the long runs. Under customary assumptions regarding the sign of the parameters of the effort function, more inflation lowers the unemployment rate, though to...

Using a standard dynamic general equilibrium model, we show that the interaction of staggered nominal contracts with hyperbolic discounting leads to inflation having significant long-run effects on real variables. -- Inflation ; unemployment ; Phillips curve ; nominal inertia ; monetary policy ;...

This paper explores zero lower bound (ZLB) economics. The ZLB is widely invoked to explain stagnation and it fits with the long tradition that argues Keynesian economics is a special case based on nominal rigidities. The ZLB represents the newest rigidity. Contrary to ZLB economics, not only...

We quantify the role of contractionary monetary shocks and wage rigidities in the U.S. Great Contraction. While the average economy-wide real wage varied little over 1929-33, real wages rose significantly in some industries. We calibrate a two-sector model with intermediates to the 1929 U.S....

Using a standard dynamic general equilibrium model, we show that the interaction of staggered nominal contracts with hyperbolic discounting leads to inflation having significant long-run effects on real variables